Citi has identified several undervalued global AI stocks that offer big investment opportunities. The Wall Street bank said these stocks have seen improving earnings forecasts but have not experienced a significant rise in valuations, making them attractive for investors who want to benefit from the AI trend without paying a premium price. AI stocks have driven a big surge in global stock markets this year. AI has driven about half of the MSCI All Country World Index’s 11% return so far, according to Citi. This is despite AI stocks making up just 14% of the index’s market capitalization. The situation is similar to the S&P 500, where large AI-focused stocks have driven much of the gains. “This group of stocks has generally benefited from rising multiples and improved 2024 earnings expectations,” said Citi strategists led by Drew Pettit and Beata Manthey. While many AI stocks have benefited from both expanding price-to-price multiples and upward revisions to earnings, Citi has identified 19 stocks that buck the trend. According to the bank, these stocks are primarily “moderate” exposure to AI. The investment bank’s analysts raised their 2024 earnings forecasts for these stocks, but they have yet to experience significant price-to-earnings expansion. Among the companies highlighted by Citi’s screen are familiar names such as Digital Realty Trust, Airbnb and Apple. The research note noted that “all of these stocks have lagged in AI so far this year,” but “returns have been positive and momentum has recently picked up.” Other notable companies on the list include Toyota Motor Corp., Visa, ServiceNow Inc. and Samsung Electronics Co. These stocks represent a range of sectors and regions, indicating that AI’s impact is spreading around the world. According to Citi’s analysis, stocks with high exposure to AI have returned 36% so far this year, with 22% coming from price-to-earnings expansion and 14% from upward revisions to earnings per share. This dual tailwind of improving valuations and fundamentals was not seen among stocks with moderate or low exposure to AI, as shown in the table above. —CNBC’s Michael Bloom contributed to this report.
